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California loses its lustre and sends business away

Once the envy of other businesses across America for its climate and natural resources, California is losing its magnetism in a dramatic way.

Last September I wrote about the reasons why the wealthy are leaving California in droves. I wrote that more than 855,000 private sector jobs and 254 businesses left the state in 2011 and another 210 had left in 2010.

The two main reasons why businesses are leaving California for more business-friendly states are the high taxes and massive regulations. They have led George Mason University’s Mercatus Center to rank California 48th in the nation. Add to that the outrageous demands of unions on their companies and you have a recipe for disaster in the making.

While unions once represented more than 35% of private sector jobs, today that number is fewer than 7%. The reason: GREED.

Starting in the 1970s unions began to literally bankrupt major U.S. industries, including the auto, steel and airline sectors.

For example, by 2007 health care resulted in a $1,635 per vehicle cost at GM for each active and retired worker, while U.S. Toyota pays nothing for retired workers and a mere $215 for active workers. (Harbour-Felax).

Additionally, union rules, including line relief and holiday pay amount to another $630 per vehicle that the Japanese do not incur. And while all UAW workers are paid for not working while plants are shut down, GM adds another $350 per vehicle cost.

This amounts to a cost of approximately $2,615 for each GM vehicle produced that is passed onto its customers – something buyers of Japanese vehicles don’t incur.

The two key culprits here are health care and pension costs for union workers.

According to Harbour-Felax, if a GM plant with 3,000 workers has no dealer orders it has two options: close the plant for a week, which will still cost GM 95% of each worker’s take-home pay plus benefits, or keep the plant open and end up selling the vehicles to rental companies at discounts of up to $3,000 to $5,000 per vehicle.

Once the garden of the steel industry, places like Gary, Indiana are ghost towns by comparison today. Thanks to union demands.

With regard to the airline industry, there are a fraction of the airline companies that were in existence in the early 1970s. Again, due to union demands. And in this global economy were are living in today, there is no end in sight to the businesses that are going offshore or going out of business altogether.

A recent Wall Street Journal survey of 650 business leaders found that Texas is the best state in which to conduct business. And the worst state in which to do business? California, the survey found.

Other states are luring California-based companies to their states at a record pace. Harold Howell, owner of Howell Precision Machine and Engineering moved his entire venture from Lancaster, California to Colorado Springs, Colorado, estimating he has saved 25% in his overhead costs.

Carl’s Jr. Restaurants has shipped its headquarters from Carpenteria, California to Texas, where it intends to expand with 300 new restaurants.

Capital One closed its Salinas, California doors and moved to Sioux Falls, S.D., while DirecTc moved its headquarters from El Segundo, CA to Marshalltown, Iowa.

Even Thomas Brothers has moved its shop to Skokie, Ill.

Yet, even considering all of this, the Democratically-controlled legislature in Sacramento continues to drown businesses in never-ending taxing and regulating.

And if Governor Jerry Brown is not able to thwart or even weaken the state’s version of Cap & Trade, this trend will only get worse, leaving California unable to pay for the legislature’s lavish spending habits. Sound familiar? Check the national debt!!

Spero contributor John Mancino is a California business owner and political activist.